Information technology and organizational slack

A characteristic of the information age is the dramatic increase in expenditures by organizations on information technology (IT). As a result of these investments, managers generally anticipate productivity gains, which are commensurate with the costs of IT. However, several empirical studies in the 1980s and early 1990s found no statistical association between IT spending and financial performance (the productivity paradox, PP). One possible source of this paradox was proposed by Brynjolfsson [Commun. ACM (1993)]. He proposed that during the pre-1991 period, IT might have increased slack, but neither organizational output nor profits. We test whether the relation between investment and IT in the productivity paradox era was due to increased slack. We find that overall, IT investment led to an increase in slack in the period prior to 1991, but not after. Our results are primarily driven by manufacturing companies.

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